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Still on the alleged printing of N60bn for FAAC augmentation

The claim by the Edo State Governor, Godwin Obaseki that the sum of N60 billion was printed by the Central Bank of Nigeria (CBN) to augment the Federal Accounts Allocation Committee (FAAC) revenue sharing for March 2021 remains a trending issue. The allegation was denied by the Minister of Finance Zainab Ahmed while the CBN Governor, Mr. Godwin Emefiele explained that the apex bank must always do the needful by supporting the government in difficult times. The National Economic Council (NEC) has also taken a position, insisting that the statement by Mr. Obaseki was not correct. However, beyond the claims and counterclaims, this touchy matter raises some fundamental questions on how the economy is being managed, both from the fiscal angle as well as the monetary side.

Starting from the monetary view, Section 38(1) of the CBN Act 2007 provides that ‘The CBN may grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine’. Also, Section 38(3)(a) states that ‘The advances shall be repaid as soon as possible and shall in any event be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the Bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid’. Sharing of revenue from the Federation Account is done on the basis of the allocation formula of 52.68% to the Federal Government, 26.72% to the State Governments and 20.60% to the Local Governments, and what is available is distributed based on this formula. Should there be need for augmentation, drawings can then be made from the stabilization accounts. Thus, if the allegation by Mr. Obaseki is true, then the effect on the economy will be negative in the medium to long-term and also set a wrong precedence on how not to use monetary tools to support the fiscal authorities.

Another side to this is to ask if the CBN adheres to its own law when making advances to the Federal Government because there have been concerns in this regard over time. For example, as a member of the Monetary Policy Committee, Professor Adedoyin Salami in his personal statement in the Policy Communique of July 2017, pages 38 – 39, posited that the CBN was providing piggy bank services to the Federal Government owing to the sharp rise in the financing of the deficit. Beyond the scale of the advances, other pertinent questions are: (a) At what rate of interest does the CBN lend to the Federal Government? Is the rate arbitrary or market determined? (b) Does the Federal Government repay the outstanding advances by the end of the financial year in which the advances were granted? (c) Does the CBN make further advances to the Federal Government even when there are unpaid obligations, thereby contravening Section 38(3)(a) of its Act? (d) What about the Budget Support of $2.1 billion to States in 2015? Was Mr. Emefiele implicitly referring to Section 38(3)(a) of the CBN Act when he said further delays in repayment may result to technical problems? (e) Are the Federal Government’s outstanding obligations to the CBN reflected in the Federal Government’s component of the public debt?

From the fiscal side, while the counsel by Mr. Obaseki that the government rally stakeholders to address the fiscal slide is welcomed, it is crucial to mention that the task of growing the economy rests on the Federal Government and the subnationals. There is the misconception that the Federal Government is synonymous with the Federation and this often results in majority of the blame going to the Federal Government. However, if we use revenue sharing as a basic example, the Federal Government’s share of 52.68% simply means that it does not control 47.32% of resources distributed from the Federation Account. Thus, the three tiers of government must account for their share of resources. For instance, Nigeria’s poor ranking in global mortality rate is not a failure of the Federal Government alone, but failure of the Federation that comprises the Federal, State and Local Governments to deliver healthcare to the people. Curbing the fiscal slide requires improved revenue generation and efficiency in expenditure by all tiers of Government. Because most States are not ingenious in their Internally Generated Revenue drive, periods of negative shocks to federal allocations often results in pressure in meeting their obligations, especially in the personnel side of the budget. Worse is the inefficiency in managing the little available resources due to extravagant and irrelevant expenditures.

Finally, it is important that sensitive issues such as the one raised by Mr. Obaseki be dealt with at the levels of the NEC and the Governor’s Forum. The Ministry of Finance and the CBN in making their presentations during NEC meetings should provide adequate information and clear any doubts that members may have. It could be that Mr. Obaseki did not get his facts correctly as opined by the Finance Minister because such facts were not made available by both the Ministry and the CBN. Whoever has observed the Finance Minister from close quarters will acknowledge that she is probably one of the best, if not the best, in a government that has practically failed to keep to its electoral promises. Mr. Emefiele has not hidden his passion for standing by the government even at the expense of his primary mandate of managing inflation, which in fairness to him remains a challenge owing to structural bottlenecks that are beyond the purview of the CBN. What has probably played out is that communication and information sharing amongst managers of the economy is inadequate. This needs to improve as it will enhance transparency and help avoid issues such as the one raised by Mr. Obaseki.

Dr. Ekor wrote from Abuja. 08053810403; maxwellekor@gmail.com

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